Unit 2 quiz questions
Variable annuity
A risk faced by many seniors is longevity risk. What security would be most appropriate to protect against that risk?
out-of-the-money
A stock currently sells for $75 per share. If a put option on the stock has an exercise price of $70 and currently sells for $0.50, the put option is:
I. The option buyer is looking for market volatility IV. The option seller is looking for market stability.
Which of the following statements is most accurate when describing equity straddle options?
Buy a call.
Which of the following strategies would most effectively protect an investor with a short stock position?
A growth-oriented common stock fund.
Which of the following will most likely be the most volatile investment over a short-term time period?
unsuitable
A widowed customer with no children has a portfolio invested in mutual funds valued at $250,000. The portfolio generates a monthly income of $1,600, an amount that exceeds her living expenses by $300. The investment portfolio is her sole source of income. Her agent recommends she sell $30,000 worth of her mutual funds and purchase a deferred variable annuity to take advantage of the tax deferral and death benefit features. This recommendation is
Unit values are computed daily and cash values are computed monthly
Which of the following statements is TRUE concerning variable life separate account valuation?
taxed as ordinary income
A 64 year-old woman wishes to withdraw funds from her non-qualified single premium deferred variable annuity purchased a number of years ago. The withdrawal would be
. II. The new policy will bear the same issue date and age as the original policy. III. The face amount must remain the same.
A client who purchased a variable life insurance policy 15 months ago has suffered a stroke. In addition, he has developed adult onset diabetes. When receiving treatment for the stroke, he was diagnosed with lung cancer. He has decided to convert his variable policy to a whole life policy. Which of the following statements is CORRECT?
Buy S&P 500 index puts.
A corporation sponsors a defined benefit pension plan. The assets of the plan are invested in a diversified portfolio of large-cap stocks. Which of the following options positions would be most appropriate if the corporation wished to protect their ability to meet their obligations to employees?
partially a tax-free return of capital and partially taxable
A customer has a nonqualified variable annuity. Once the contract is annuitized, monthly payments to the customer are:
unsuitable because of surrender fees.
A customer purchased a variable annuity from an agent five years ago with an initial investment of $200,000. The annuity's surrender fee will expire in year seven, which coincides with the customer's anticipated need for the funds. In the fifth year of the contract, the value of the annuity increased from $300,000 to $375,000. The agent notices that the general market is on the decline and recommends she enter a 1035 exchange of the variable contract for another, thus increasing her death benefit and locking it in at a higher minimum. This recommendation is:
Federal law requires the insurance company to allow the insured to exchange the VLI policy for a permanent form of life insurance policy, issued by the same company, for two years, with no additional evidence of insurability.
A registered representative presenting a variable life insurance (VLI) policy proposal to a prospect must disclose which of the following about the insured's rights of exchange of the VLI policy?
Short 2 XYZ uncovered puts.
All of the following positions expose a customer to unlimited risk EXCEPT:
sell a call
An investor is long stock in a cash account and does not expect the price to change in the immediate future. His best strategy to generate income may be to:
obtain income
An investor would write a call option to:
Annuity
Current IRS regulations permit an unlimited contribution to which of the following tax-deferred plans?
universal variable life
Flexible premium payments are a feature of:
$3,420.00
In the past 20 years, 55-year-old James has put $27,000 into accumulation units in his nonqualified variable annuity. The current value of his units is $36,000. He wishes to withdraw $16,000 to assist with his grandchild's college education. If he is in the 28% tax bracket, what is his tax consequence on the withdrawal?
I. liquidity. II. creditworthiness of the buyer.
One of your advisory clients indicates that he would like to sell forward contracts in soybeans. It would be wise to warn the client that he will be facing the following risks:
To fix the cost of acquiring additional stock to the portfolio
Purchasers of options can have a number of different objectives. One of your clients who is a soft drink fan already has a long position in KO. What would be a possible reason for this client to go long a KO call option?
annually
The death benefit of a variable life policy must be calculated at least:
II. offers a payment that may vary in amount. IV. attempts to offer protection to the annuitant from inflation.
The difference between a fixed annuity and a variable annuity is that the variable annuity:
CMOs
The term derivative would apply to all of the following EXCEPT
a call option
The type of derivative that gives the holder the right, but not the obligation, to buy an asset at a specified price during a specified period is:
permanent form of life insurance
Under the exchange provision, within the first 24 months, a variable life policy may be converted into a
The principal amount at death is the greater of the total of premium payments or the current market value
Which of the following best describes the death benefit provision of a variable annuity?
Tax-free income
Which of the following is NOT a feature in owning a limited partnership?
Unit investment trust.
Which of the following is not considered to be a derivative?
I. The number of annuity units is fixed when payout begins III. The monthly annuity payment is a variable amount.
Which of the following statements are TRUE of a variable annuity?
I. Universal life has flexible premiums. IV. Cash values can fluctuate and may even fall to zero.
Which of the following statements concerning universal life insurance are CORRECT?
Limited partners actively manage the investments in the partnership but are not liable for funds in excess of the amounts they have invested.
Which of the following statements is NOT true?
